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RBI & its Status Quo: Increasing Concerns for Real Estate

RBI real estate repo rate realtymyths
“Real estate sector was very hopeful that RBI would slash repo rate by at least 25bps. It is quite evident that the sector is struggling to generate sales and is over-burdened with piling inventories. A rate cut now would have helped it convince buyers and boost sales”

RBI rate cut real estate realtymyths

Santosh Sinha

The Reserve Bank of India today concluded the second bi-monthly monetary policy review for the current financial year.  RBI’s Governor Raghuram Rajan, known for going by instinct and offer surprises, today behaved on expected lines. RBI kept the key Repo and Reverse repo rates unchanged. These rates remained at 6.5% and 6% respectively. Though some sections of the industry were quite hopeful of a 25bps cut in repo, rest of it expected a ‘status quo’ from the Apex Bank.

RBI chose to remain cautious and wanted the inflation to settle down. The CPI or the Retail Inflation increased to 5.4% from 4.8%. It also wanted to taste the monsoon as it would have a greater impact on WPI as well as CPI. Though the monsoon is expected to be above average this year, any flip-flop in the expectations might spoil the party.

Real estate sector in particular, was very hopeful of a rate cut. It is struggling to generate sales and is over-burdened with piling inventories. A rate cut now would have helped it convince buyers and boost sales.

Let’s see how the sector reacted to RBI’s decision of no change in rates:

 – Atul Banshal, President – Finance & Accounts, M3M Group
“Indian government has been successfully rolling out several initiatives and reforms to pull back the economy on track. With Government’s determination to streamline India’s overall economy, RBI should have complimented these steps by softening interest rates. Market aspirations were also looking forward to such move, which would have surely aggregated positive buyer sentiments especially for real estate and automobile sectors. While Indian economy is showing some encouraging signs, it was the opportune moment to offer moves that would have ascertain steady momentum”

 – Rajesh K Gouri, Vice President, Homestead
“We welcome the decision for a better prospect as it seems that it want to create conducive environment for the economic growth and anticipate for a positive outcome. However a reduction in policy rates at this stage would have been highly favorable for real estate industry which is reeling under low-demand pressure since long. Going forward we expect RBI to cut rates in its monetary policy in order to revive the sentiment of the real estate sector”

 – Vineet Relia, Managing Director, SARE Homes
“RBI Governor Raghuram Rajan’s decision to keep the repo rate unchanged at 6.5% is disappointing, though not unexpected. As the RBI had already announced a 25 basis point repo rate cut in its April policy review, and with retail inflation rising to 5.39% in April from 4.83% in March, expectations of a rate cut were extremely muted. Since retail inflation is expected to rise due to the rally in crude oil and other commodities prices and implementation of the 7th Pay Commission recommendations, it is clear the RBI is focused on lowering retail inflation to 5% by March 2017. Nonetheless, since demand in real estate and allied industries remains sluggish, a rate cut could have improved liquidity and created renewed interest in property purchase. But with the RBI stating its monetary policy stance is “accommodative”, one is hopeful a rate cut may be in the offing in the latter half of 2016”

 – Manju Yagnik, Vice Chairperson, Nahar Group
“We welcome RBI Governor Dr. Raghuram Rajan’s announcement today on keeping the repo rate unchanged at 6.50 per cent. The last RBI bi-monthly announcement had reduced interest rate which was not passed on to customers by the banks. We hope that now banks pass on the benefits to the customers by lowering interest rates which will result in home buyers coming forth and buying property.  This has the potential to spur property sales and inject fresh capital into the market.

The Indian economy grew by 7.9 per cent in the March quarter and ranked as the world’s fastest growing economy. This move will create jobs and create positive sentiments within the country. Also, keeping rates unchanged will help control inflation which presently is at 5% with an upward bias”

 – Neeraj Gulati, Managing Director, Assotech Realty
“The Reserve Bank of India’s move to maintain status quo on key policy rates was on expected lines. A cut in rates would have certainly improved the market sentiments too and provide necessary impetus to buyer’s sentiments as well. However, in the longer run we definitely foresee rate cuts that will boost the housing demand in India. We have seen few banks passing rate cut benefit to the home borrowers but we expect more banks to follow the same trend in the coming months.

It is evident that inflation is trending upwards. Coupled with this, capital investment remains sluggish and supply constraints continue to act as a dampener. All this has left very little room for the RBI to maneuver.”

 – Gaurav Mittal, Managing Director, CHD Developers Limited
“On the backdrop of higher inflation, it was expected that RBI would maintain a status-quo on the key policy rates. RBI however has taken considerable steps to infuse liquidity in the market by reducing the lending rate by 150 basis points since 2015 and narrowing the policy rate corridor to 50 bps from 100 bps (in the first bi-monthly meeting of 2016); however; the banks need to pass on the benefits of the past policy rate cuts to home buyers by reducing the mortgage rates thereby making the home loans more affordable for the buyer.”

 – Amit Modi, Director ABA CORP & Vice President, CREDAI Western UP
“RBI as well as the Developers has done their part, the banks on the other hand have not been generous enough to pass on the entire benefit of this reduction to end consumers. Hence, it is an expected move taken by the RBI Governor to keep repo rates unchanged as the Reserve Bank of India has cut key policy rates by 1.5 percentage points since January 2015 to signal lower interest rates in the economy, but home loan borrowers have got only around one-third of the benefit. We sincerely hope that both Finance Ministry as well as the RBI push all the Banks to transfer the entire benefit to the end consumer for whose benefit it is meant, else these moves will severely stop short of benefiting the consumer and only help in buffering the bottom lines of the banks”

 – VP Mahendru, Chairman, EON Electric
“With inflation and global crude oil prices inching up, the industry was hopeful about another rate cut. In its last review of the Monetary Policy in April this year, the RBI had announced a slew of liquidity enhancement measures which has helped in increasing liquidity in the system. The market will start gaining momentum once RBI starts persuading banks to pass on benefits of earlier rate cuts to borrowers, as they have only lowered lending rates by 65 bps since early 2015.”

 – Kishore Bhatija, Managing Director, K Raheja Corp
“The second bi-monthly policy announcement while maintains status quo on the rates, is accommodative in approach. We continue to be optimistic as the banks still have room to pass on the benefits of the previous rate cuts undertaken. We believe the steps taken by the governor are on the right path to address the economy where the inflation is likely to witness an upward bias”

 – Rajesh Prajapati, Managing Director, Prajapati Constructions
“The real estate industry was hoping for a rate cut in the present bi-monthly policy meet. But the RBI Governor Dr. Raghuam Rajan decided to push the pause button and kept the interest rates unchanged which are not a welcome sign for prospective home buyers.

The rate cut in the last monetary policy had put the market on a right path, as we saw some renewed interest for properties especially in Navi Mumbai and Raigad. We have to remember one thing, the government is putting thrust on affordable housing but the same will remain a mirage till the time the cost of funds remains higher.

The Housing for All is an ambitious project by the Government and RBI needs to be proactive in making this dream come true by reducing the interest rates and making housing affordable”

 – Ashwin Sheth, CMD, Sheth Corp Ltd.
“Playing it safe, RBI has been more cautious about the monsoon and its impact on inflation. Although, a rate cut at this stage would have helped in lowering the home loan interest rates making home buying a reality for most buyers who have been eagerly waiting for the rates to cut down.

The Government has taken the lead in trying to implement policies that will boost growth of the real estate sector. In the same vein, RBI too should have looked at the real estate sector with new optimism”

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